GAURISONS, MUMBAI V. ITO 12(3)(1), MUMBAI

ITA 2026/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56288 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 15-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: NARAYAN ATAL
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) M/S GAURISONS, 161-C, MITTAL TOWER, NARIMAN POINT, MUMBAI-400021. PAN: AAAFG1167C INCOME TAX OFFICER 12(3)(1), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. APPELLANT V/S RESPONDENT DATE OF HEARING : 15.12.2011 DATE OF PRONOUNCEMENT : 28.12.2011 APPELLANT BY : SHRI NARAYAN ATAL RESPONDENT BY : SHRI A.K.NAYAK O R D E R PER VIJAY PAL RAO (JM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 1.12.2009 OF THE LD. CIT(A), FOR T HE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED FOLLOWING EFFECTIVE GROUNDS : 1. THE COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING COMPENSATION FOR USE OF GODOWN OF RS.4,20,000 AS INCOME FROM OTHER SOURCES. 2. THE COMMISSIONER OF INCOME TAX (A) ERRED IN IN CONFIRMING THE EXPENDITURE TOWARDS LEGAL MATTER SETTLEMENT OF RS.4,23,600/-. 3. THE COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE EXPENDITURES ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 2 TOWARDS LEGAL AND PROFESSIONAL CHARGES OF RS.3,56,181/- 4. THE COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE FOLLOWING EXPENDITURE AGGREGATING TO RS. 2,51,347. 3. GROUND NO.1 IS REGARDING TREATMENT OF COMPENSATION RECEIVED FOR SUB-LETTING OF THE GO-DOW N AS INCOME FORM OTHER SOURCES. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CREDITED IN THE PR OFIT AND LOSS ACCOUNT THE RECEIPT AS COMPENSATION, INTER EST RECEIVED IN KVP, ACCRUED DIVIDEND ON MUTUAL FUND, SUNDRY BALANCE WRITTEN OFF AND INTEREST ON BANK FDR . THE ASSESSEE CLAIMED THE COMPENSATION RECEIVED FOR THE SUB-LETTING THE GODOWNS TO M/S MBK ENTERPRISES OF RS.4,20,000/- AS BUSINESS INCOME. THE AO TREATED THE SAME AS INCOME FROM OTHER SOURCES. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E AO BY FOLLOWING THE DECISION OF THE CALCUTTA HIGH C OURT IN THE CASE OF CIT V/S SHAMBHU INVESTMENT (P ) L TD. REPORTED IN 249 ITR 0047 (CAL) WHICH WAS CONFIRMED BY THE HONBLE SUPREME COURT (M/S SHAMBHU INVESTMENTS PRIVATE LIMITED V/S CIT (263 ITR 143) A ND THE DECISION OF THE HONBLE SUPREME COURT IN SULTA N BROTHERS PRIVATE LTD. V/S CIT (1964) 51 ITR 353 (SC ). ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 3 5. BEFORE US, THE LD. AR HAS SUBMITTED THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF TAKING AND PROVIDING WAREHOUSE FACILITIES. THE ASSESSEE FIRM HAD TAKEN A GODOWN AT BYCULLA ON RENT IN THE EARLIER YE ARS FROM M\S DIANA SOAP COMPANY AND FURTHER LICENCED I T OUT TO FIVE COMPANIES FOR THEIR BUSINESS PURPOSES. DURING A.Y.2005-06 ASSESSEE RECEIVED A SUM OF RS. 60,000 EACH AS STORAGE CHARGES FROM THE ABOVE SAID FIVE COMPANIES FOR PROVIDING WARE HOUSE FACILITIES (BEING COMMERCIAL ASSETS). FURTHER THE ASSESSEE RECEIVED A SUM OF RS 1,20,000 AS COMPENSATION FROM MBK ENTERPRISES FOR SHARING ITS OFFICE PREMISES. T HE LD. AR SUBMITTED THAT THE GODOWN AND PREMISES ARE COMMERCIAL ASSETS, THEREFORE, HE SUBMITTED THAT THE INCOME EARNED BY THE ASSESSEE FROM STORAGE CHARGES IS A BUSINESS INCOME. HE HAS FURTHER SUBMITTED THAT T HE STORAGE CHARGES RECEIVED FROM THE GODOWN, THE PREMISES HAS BEEN ASSESSED IN THE EARLIER YEAR AS BUSINESS INCOME BY THE REVENUE, THEREFORE, THE AO CANNOT TAKE A DIFFERENT VIEW BY TREATING THE RECEI PT AS INCOME FROM OTHER SOURCES. HE HAS RELIED UPON THE VARIOUS DECISIONS IN SUPPORT OF HIS CONTENTION. ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 4 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM BUSINES S BUT ALL THE INCOME /RECEIPTS SHOWN BY THE ASSESSEE DURING THE YEAR ARE EITHER FROM THE INCOME FROM SU B- LETTING OF THE PROPERTIES OR INTEREST INCOME OR DIV IDEND INCOME. THEREFORE, WHEN THE ASSESSEE IS NOT CARRYIN G OUT ANY BUSINESS THEN THE SAID RECEIPT CANNOT BE TREATED AS INCOME FROM THE BUSINESS. EVEN OTHERWIS E, WHEN THE ASSESSEE IS NO MORE IN THE BUSINESS OF TAK ING AND PROVIDING WARE HOUSING FACILITIES. THEN SUB-LET TING OF THE PREMISES IN QUESTION AND THAT TOO PART OF TH E PREMISES WHICH WAS OCCUPIED BY THE ASSESSEE AS ITS OFFICE CANNOT BE TREATED AS INCOME FROM BUSINESS ACTIVITY. HE HAS RELIED UPON THE ORDERS OF THE LOW ER AUTHORITIES. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND PERUSED THE RELEVANT RECORD. UNDISPUTEDLY, THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS EXCEPT TH E RECEIPT OF SUBLETTING OF THE PREMISES IN QUESTION A ND SOME INTEREST, DIVIDEND INCOME. EVEN IN THE EARLIE R YEARS AS WELL AS IN THE SUBSEQUENT YEARS NO BUSINES S ACTIVITY WAS CARRIED OUT BY THE ASSESSEE WHICH CLEA RLY SUGGESTS THAT THE ASSESSEE HAS DISCONTINUED ITS ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 5 BUSINESS ACTIVITY. UNDER THESE CIRCUMSTANCES, THE INCOME FROM SUBLETTING OF THE PREMISES, IN OUR VIEW S, HAS RIGHTLY BEEN ASSESSED BY THE LOWER AUTHORITY AS INCOME FROM OTHER SOURCES. THE CIT(A) HAS DISCUSS ED HE ISSUE IN DETAILED AND CONFIRMED THE TREATMENT O F THE INCOME AS INCOME FROM OTHER SOURCES BY FOLLOWING TH E DECISION IN THE CASE OF CIT V/S SHAMBHU INVESTMEN T (P ) LTD. (SUPRA). THE DECISION RELIED UPON BY THE ASSESSEE CANNOT BE APPLIED TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHEN THE ASSESSEE HAS DISCONTINUED THE BUSINESS ACTIVITIES. ACCORDIN GLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED OF THE LD. CIT(A) QUA THIS ISSUE. THE SAM E IS UPHELD. 8. GROUND NO.2 AND 3 RELATE TO LEGAL AND PROFESSIONAL CHARGES. 9. THE AO DISALLOWED THE EXPENDITURES TOWARDS LEGAL MATTER SETTLEMENT AS WELL AS LEGAL AND PROFESSIONA L CHARGES ON THE GROUND THAT NO SALE OR PURCHASES DUR ING THE YEAR WAS SHOWN BY THE ASSESSEE AND THEREFORE NO BUSINESS ACTIVITIES WERE CARRIED ON BY THE ASSESSEE . ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 6 10. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. 11. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT DURING THE AY 2005-06 THE ASSESSEE HAS PAID A SUM OF RS.4,23,600 ON ACCOUNT OF EXPENDITURE TOWARDS SETTLEMENT OF LEGAL MATTERS. HE SUBMITTED THAT UNION BANK OF INDIA FLIED A CASE AGAINST THE FIRM F OR SEVERAL CRORES AND THIS CASE PERTAINS TO IMPORT OF COPPER SCRAP FROM SINGAPORE IN 1979 AND THE SHIP HA D SUNK IN MID OCEAN. THE ASSESSEE FIRM HAD REFUSED T O PAY AGAINST THE LETTER OF CREDIT OPENED BY UNION BA NK, KHAND BAZAAR BRANCH, AS THE ASSESSEE HAD DOUBTED FRAUD BY THE SHIPPERS. HOWEVER THE SHIPPERS BANK F ILED CASE AGAINST UNION BANK IN LONDON COURTS. UNION BAN K OF INDIA AGITATED THE CASE WITHOUT INFORMING THE ASSESSEE WITHOUT PERMISSION OF THE ASSESSEE , THE B ANK AVOIDED TO FILE EVEN AN APPEAL AND PAID THE AMOUNT. THE BANK REFUSED TO GIVE THE ORIGINAL INSURANCE POL ICY TO THE ASSESSEE TO FILE A CLAIM. THE LD. AR SUBMITT ED THAT THIS MATTER WAS INVESTIGATED BY THE CBI. HE SUBMITTED THAT SEVERAL OTHER IMPORTERS WERE ALSO AFFECTED BY THE ACCIDENT AND COURTS HAD PASSED ORDE RS IN FAVOUR OF BANKS IN MOST OF THE CASES. THIS CASES HAS ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 7 TAKEN SEVERAL YEARS IN THE HIGH COURT, DEBT RECOVER Y TRIBUNAL, DRAT AND AGAIN IN DEBT RECOVERY TRIBUNAL. FINALLY, IT WAS SETTLED OUT OF COURT FOR RS.8 LAKHS AGAINST THEIR DEMAND FOR SEVERAL CRORES. THE LD. AR SUBMITTED THAT IF THIS MATTER WOULD NOT HAVE BEEN SETTLED, THE ASSESSEE HAD TO SUFFER THE LIABILITY O F MORE THAN RS. 2 CRORES. 12. DURING AY 2005-06 ASSESSEE HAS PAID A SUM OF RS.3,56,184/- ON ACCOUNT OF PROFESSIONAL AND LEGAL FEES PAID TO ADVOCATES AND OTHER PROFESSIONALS. THE ASSESSING OFFICER DISALLOWED THIS EXPENDITURE ON TH E GROUND THAT THESE EXPENDITURES ARE NOT RELATED TO T HE BUSINESS ACTIVITIES. IN THIS REGARD, THE LD. AR SUB MITTED THAT THE EXPENDITURES HAVE BEEN INCURRED TOWARDS TH E PROFESSIONAL FEES OF RS.3,11,000 PAID TO DESAI AND CHINOY, ADVOCATES. THIS AMOUNT WAS PAID TO CONTEST THE CASE FILED BY THE UNION BANK OF INDIA AGAINST THE FIRM FOR SEVERAL CRORES (AS DISCUSSED ABOVE). THE L D. AR SUBMITTED THAT INCLUDING THE ASSESSEE SEVERAL OTHER IMPORTERS WERE ALSO AFFECTED BY THIS ACCIDENT AND COURTS HAD PASSED THE ORDERS AGAINST THE ASSESSEE A ND OTHERS. THE MATTER TOOK SEVERAL YEARS BEFORE THE SEVERAL JUDICIAL FORUMS LIKE HIGH COURT, DEBT RECOV ERY ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 8 TRIBUNAL, DRAT AND AGAIN IN DEBT RECOVERY TRIBUNAL. FINALLY, IT WAS SETTLED OUT OF COURT FOR RS. 8 LAKH S AGAINST THEIR DEMAND FOR SEVERAL CRORES FOR THIS LITIGATION THE AMOUNT OF RS 3,11,000/- WAS PAID TO DESAI AND CHINOY, ADVOCATES WHICH IS INCURRED FOR T HE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 13. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT NO BUSINESS ACTIVITIES WERE CARRIED ON BY THE ASSES SEE THEN THE CLAIM OF THE EXPENDITURE CANNOT BE ALLOWED . HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORI TIES. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE RELEVANT RECORD. THOUGH THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION, HOWEVER THE EXPENDITURE INCURRED ON THE LEGAL MATTER AND LEGAL CHARGES PAID ARE FOR THE LITIGATION PENDING BETWEEN THE UNION BANK AND THE ASSESSEE REGARDING SOME IMPORT OF COPPER SCRAP AND THE SHIP CARRYING THE SAID MATERI AL SUNK IN THE MID-OCEAN. THEREFORE, THE SAID MATTER WAS VERY MUCH CONNECTED WITH THE BUSINESS ACT IVITY OF THE ASSESSEE. SINCE THE LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 9 THEREFORE, IN OUR VIEW THE SAME CANNOT BE OUTRIGHT LY DISALLOWED. HENCE, WE ARE OF THE OPINION THAT THE EXPENDITURE INCURRED TOWARDS LEGAL MATTER AND LEGAL EXPENSES FOR THE DISPUTE PERTAINING TO THE BUSINESS ACTIVITIES OF THE ASSESSEE HAS TO BE TREATED AS BU SINESS LOSS AND ACCORDINGLY CLAIM SHOULD BE ALLOWED AS PER LAW. ACCORDINGLY, THE AO IS DIRECTED TO RE-CONSID ER THE SAID CLAIM OF THE ASSESSEE AND DECIDE THE ISSUE. THIS ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.4 IS REGARDING DISALLOWANCES OF EXPENSES AGGREGATING TO RS.2,51,347/- 16. WE HAVE HEARD THE LD.AR OF THE ASSESSEE. HE HA S SUBMITTED THAT DUE TO THE LITIGATION WITH THE UNION BANK OF INDIA, THE ASSESSEE HAD TO INCURRED EXPENSES DUR ING THE YEAR AS A GOING CONCERN. THE ABOVE EXPENSES ARE ROUTINE ADMINISTRATIVE EXPENSES WHICH EVERY ORGANIZATION HAS TO INCUR. THESE EXPENSES WERE GENU INE EXPENSES FOR THE PURPOSE OF BUSINESS AND ACTIVITIES OF THE ASSESSEE FIRM THEREFORE, HE SUBMITTED THAT THE SE EXPENSES MAY BE ALLOWED. ALTERNATIVELY, THE LD. AR HAS SUBMITTED THAT THESE EXPENDITURE SHOULD BE ALLOWED U/S 57 OF THE INCOME TAX ACT, 1961. ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 10 17. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT NO BUSINESS ACTIVITIES WERE CARRIED BY THE ASSESSEE THEN THE CLAIM OF THE EXPENDITURE CANNOT BE ALLOWED. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 18. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS CLAIMED THE FOLLOWING EXPENDITURES : PARTICULARS AMOUNT IN RS. BUSINESS DEVELOPMENT EXPS. 11,009 CONVEYANCE EXPENSES 5,072 BOOK & PERIODICALS 1,600 DEPRECIATION 69,085 ADVERTISEMENT 3,948 MAINTENANCE CHARGES 41,007 MISCELLANEOUS CHARGES 17,769 TRAVELLING EXPENSES 17,283 STAFF WELFARE EXPENSES 3,624 COURIER CHARGES 1,110 PROFESSION TAX 15,800 TOTAL 2,51,347 WHICH WERE DISALLOWED BY THE AO ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIV ITY. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE ON SIMILA R GROUNDS. SINCE, WE HAVE ALREADY HELD THAT THE INCOM E FROM SUBLETTING THE PREMISES IS ASSESSABLE AS INCOM E UNDER THE HEAD INCOME FROM OTHER SOURCES, THEREFO RE, THE CLAIM OF ASSESSEE BUSINESS EXPENDITURE CANNOT B E A ALLOWED. HOWEVER, IF ANY OF THE ITEMS OF THE ITA NO. 2026/MUM/2010 (ASSESSMENT YEAR : 2005-06) 11 EXPENDITURES IS RELATING TO THE EARNING OF THE INCO ME FROM OTHER SOURCES, THE SAME CAN BE CONSIDERED AND ALLOWED U/S 57 OF THE ACT, THEREFORE, FOR THE LIM ITED PURPOSES, WE SET ASIDE THIS ISSUE TO THE FILE OF TH E AO TO RE-CONSIDER AND ALLOW IF ANY OF THE EXPENDITURE IS RELATING TO THE INCOME ASSESSED AS INCOME FROM OTHE R SOURCES. 19. IN THE RESULT, THE ASSESSEES APPEAL STANDS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH DEC.201 1. SD SD ( T.R.SOOD ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 28TH DECEMBER, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CWT CONCERNED 4. CWT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI